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US equities tested fresh highs but struggled to build momentum as investors digested the Federal Reserve’s latest policy decision and a market rally that remained narrowly focused. The S&P 500 briefly crossed the 7,000 level for the first time before retreating to trade near flat, while the Dow was little changed and the Nasdaq edged modestly higher.

The Fed held its benchmark rate steady in the 3.5-3.75% range, as expected, and emphasized that economic activity continues to expand at a solid pace with signs of stabilization in the labor market, even as inflation remains somewhat elevated. Treasury yields moved higher following the statement and Chair Jerome Powell’s comments, which suggested policymakers do not yet view policy as meaningfully restrictive. Futures markets continue to price in the possibility of two quarter-point rate cuts by the end of 2026.

Fed stays on-balance, investors shift focus to earnings

Market strength earlier in the session was driven largely by semiconductors and AI-related names after strong earnings and optimistic outlooks reinforced the durability of AI-driven demand. Seagate surged after beating expectations and highlighting robust AI data storage needs, while ASML reported record orders and upbeat longer-term guidance tied to the AI buildout. Reports that Chinese technology giants received approval to purchase Nvidia’s advanced AI chips further supported the sector, lifting Nvidia and peers such as Micron and Taiwan Semiconductor, and pushing the VanEck Semiconductor ETF to a new 52-week high. Despite these gains, the rally failed to broaden meaningfully beyond chips, leaving the broader index vulnerable as attention shifted to the Fed.

Earnings remain a key near term focus, with results from Microsoft, Meta Platforms and Tesla due after the close, followed by Apple on Thursday. Outside of big tech, Starbucks posted its first traffic growth in two years and beat revenue expectations, though earnings fell short. Market internals showed a mixed picture, with several industrial, energy and semiconductor stocks reaching new highs, including Johnson & Johnson, Northrop Grumman, Lam Research and Micron, while a smaller group of financial services, healthcare and payroll processing names slid to new lows. Overall, the session underscored a market still leaning heavily on AI driven leadership while investors await clearer signals on monetary policy and earnings growth to support a broader advance.

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